The Current Bull Market; Less About the Past, More About What Could Lie Ahead


David Sowerby, CFA, Managing Director, Portfolio Manager

The current bull stock market officially set a record in duration at roughly 9 ½ years and, consequently, in an industry focused on statistics, this event has received much attention. Notably, while the current bull market is now a record in length, it meaningfully trails the Internet-dominated bull market of the 1990s. To be specific, the current bull market, when measured from its trough in March 2009, has seen the S&P 500 rise 414% on a total return basis (price and dividends). The bull market from October 1990 through March 2000 witnessed a 545% total return gain for the S&P 500. This bull market still has more to go to match its predecessor, which in part, provides a view that there could be greater potential for what lies ahead.

Bull stock markets get measured from their trough or starting point, which, to quote the legendary broadcaster Paul Harvey, does not tell “the rest of the story.” We prefer to also measure how bull markets have performed when measured from their prior peak, which captures the full impact of bear markets fall and subsequent rise in stock prices. Not measuring market cycles that way is akin to tubing down the Niagara River before and after the falls. The upper ride in Lake Ontario is significantly different than the very end of the tuber’s Lake Erie experience!

Measured from the prior peak, the 1990s bull market was up 421% from its peak in July 1990 through March 2000. The current bull market has risen a more tempered 130% from its peak in October 2007, before the Great Financial Crisis (GFC) of 2008. These statistics have greater relevance because they help provide a view into what investors might expect over the next couple of years.

Bull Market Cumulative Stock Returns

Source: Bloomberg

Specifically, the current bull market has not significantly surpassed its prior peak, in contrast to the 1990s bull market. If history repeats itself, this bull market has the potential to continue to offer more upside to the current stock market. Stock valuations are also not as stretched as they were in late 1999 and early 2000. The S&P 500 had a price to earnings ratio (P/E) of 30x trailing earnings in December 1999, in contrast to its current P/E of 19x. To be fair, current stock market valuations are not cheap, but when companies’ valuations are also measured on a cash flow basis, combined with their P/E ratio, many still offer idiosyncratic opportunities. A good example of this is Cisco Systems (CSCO), which at the height of the internet boom had a forward P/E of 110x, compared to a more sensible P/E of 15x earnings today.

This bull market has also suffered from being one of the more mistrusted and underappreciated when compared to its predecessors. Ironically, that skepticism is a good trait which can lead to further gains. From a contrarian perspective, investor sentiment is not as euphoric as the dot-com bubble of the late 1990s. Sentiment today has remained more grounded and been matched by more limited flows in stock mutual funds. That is likely the result of lingering investor memories of the GFC. The famous adage, “bull markets go higher on skepticism and die of euphoria,” seems appropriate as we assess the current bull market as it marks a milestone for its duration.

In the meantime, we take a very short pause to reflect on this piece of market history and remain focused on company-specific fundamentals for what they can deliver to investors in the future.

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